Daily Commentary - 30 August 2018

Contact Merchant West Capital Markets on: (+2711) 305-9500 or treasury@merchantwest.co.za

USD / ZAR 14.5989 - EUR / ZAR 17.0508 - GBP / ZAR 18.9959 -

Economic Events:

29 August:GE Consumer Confidence -US Pending Home Sales ;GDP

30 August: SA Money Supply; PPI; SA Budget -GE Unemployment Change - EC Economic Confidence -GE CPI- US Initial Jobless Claims

31 August  : CH Manufacturing PMI - EC Unemployment rate - SA Trade Balance

Market Commentary:

The rand has been on a slow path to recovery since the start of the Turkish crisis that saw emerging markets suffer as contagion fears spread, however the local unit is not yet in the clear. Trading remains highly volatile as uncertainty and jitters result in significant swings in the rand against other major currencies. On the domestic front, land reform still appears to dominate market sentiment and continues to drag on any upside potential, an argument clearly illustrated by the sharp move earlier in the week. The rand rapidly strengthened during a state of confusion when parliament withdrew the expropriation bill, but gains were soon reversed when markets realised that the ruling party was not losing steam on their proposed land reform. The land issue is expected to persist in the longer-term as it remains a key election campaign. Emerging markets are enjoying some relief from subdued risk-aversion, but the US-China trade dispute will soon come back into play which could add to selling pressure on riskier assets. On the JSE, the Top 40 traded up 0.27% and the All Share up 0.21%.

In the US market, the dollar is strengthening as the US-China trade dispute comes back into focus. Risk sentiment is wavering and markets are making the move back towards safe-haven assets. “The deadline for public comment on U.S. President Donald Trump’s tariffs on another $200 billion of Chinese goods is on Sept. 5, with the new measures possibly taking effect next month” (source: Reuters).  Stronger than expected economic growth figures also boosted the dollar. “The data cemented expectations for a U.S. rate hike next month, with a 96 percent probability, according to fed funds futures” (source: Reuters).

In the European market, the euro is holding onto its recent gains despite concerns over an increasing public deficit as a percentage of GDP in Italy. Italy has been requested by the European Commission to narrow its budget deficit, but has been reluctant to do so. High debt levels leaves the country in a vulnerable state and holds the potential for spill-overs into other euro zone countries. The pound has also strengthened remarkably following a partnership offer from the European Union as the Brexit deadline looms. “The currency climbed to the strongest level in three weeks and gilts tumbled as Michel Barnier, the EU’s chief negotiator, said the EU was prepared to offer Britain an unprecedented partnership, different from that with any third country” (source: Bloomberg).

Our range for the day : R14.30000 - R 16.6500